TPR Annual Funding Statement (AFS) 2021

I couldn’t agree more. Here are three great reasons why you should be thinking about your long-term plan right now.

Recent funding level bounce

In the last few months equity markets have risen sharply and so have gilt yields. Many schemes will therefore have seen their funding position improve - in some cases significantly. This means schemes may be in a good position now to remove material risk from their investment strategy, but will need to think through the implications of doing this on their long-term plan.  

For example, could reducing risk make it more difficult for trustees to reach their buy-out target?

Equally, some schemes will now be closer to buy-out than they previously thought possible – and will therefore need to start thinking through the practicalities of preparing for an insurance transaction, such as making sure their data and benefits are in order, as this can take some time. Having a good idea of how far off (or indeed how close) buy-out is will therefore be key.

Market opportunities like this one may of course be short lived – having a good understanding of your long-term plan, and where your scheme sits on that journey, will allow you to capture opportunities that arise.

A new reality for employers

Many trustee boards will be grappling with a new reality of a much weakened sponsoring employer. Thinking through the long term implications of this is really important – and should not be put off.  

If the trustees are concerned about the long term future of the business, should they target getting to buy-out sooner? Alternatively, a slow and steady approach may be better for an employer that can’t shoulder more unwelcome news.  

Conscious that there may be more trouble ahead for employers, the Regulator has reminded trustees of the guidance it issued last November on being ready for possible employer distress. In summary, it expects trustees to take a “rigorous approach” to protect the interests of members and ensure fair treatment with other creditors when problems arise.

These are all difficult issues but are best considered sooner rather than later.

Getting prepared

Trustees and employers will be subject to more rigorous funding and governance requirements in the future:

• TPR’s new funding code of practice will require trustees and employers to agree, and properly document, a long-term journey plan.  The Regulator will also have greater powers to intervene in funding negotiations where they don’t consider the plans adequate.
• The new governance sections of TPR’s combined code of practice will, on the other hand, require trustees to carry out an Own Risk Assessment (ORA) annually.  The ORA is designed to ensure the trustees have an effective risk management framework that is kept under regular review.

Both of these will require trustees and employers to agree a long-term approach for the scheme, and discuss how the risks in the scheme will be managed in future. These conversations could take some time, and so starting now will help ensure you are prepared for the new requirements coming into force.

In summary, now is a great time to reconsider your long-term plan for your scheme. Having a sound long-term strategy in place, and planning for better and for worse, will help you put your scheme on the right track, take advantage of opportunities that arise and deal with upcoming threats.

Our DB Navigator framework has been designed to help you think strategically about your endgame planning. Visit our website to see how you can approach your endgame journey with confidence.

If you would like to talk about this topic, please get in touch with your usual Barnett Waddingham contact to find out how we can support you. Alternatively, please contact me.